Growth in net direct tax collections turned positive for the first time in September, reversing the trend in the first five months of this fiscal, as the government received advance tax payments for the second quarter.

Net direct collections had declined for the first five months of the fiscal from a year earlier because of a decision to refund taxes earlier than usual. As of 15 September, the net direct tax collections rose 6.6% to ₹ 1.8 trillion from ₹ 1.68 trillion in the year earlier.

“We had made a conscious decision to front-load the refunds at the beginning of this fiscal. Because of this, even though gross direct tax collections were showing good growth, net direct tax collections were in the negative zone," said an official with the income-tax department, who did not want to be identified.

While gross direct tax collections increased 24% to ₹ 2.42 trillion from a year earlier, refunds have more than doubled to ₹ 62,000 crore as on 15 September from ₹ 26,000 crore in the corresponding year ago period.

Advance tax collections rose 19% in the six months ending 30 September to ₹ 1.01 trillion from ₹ 85,000 crore in the year earlier.

Companies and individuals have to pay advance tax for the second quarter by 15 September.

During the April-August period, net direct tax collections fell to ₹ 96,738 crore from ₹ 1 trillion in the year earlier. Advance tax payments for the second quarter helped the government reverse this trend.

Advance tax payments, so far, do not indicate any major slowdown in corporate earnings, said Krishan Malhotra, executive director at KPMG.

“The economy is still expected to grow at around 7.5%, which is quite good," Malhotra said. “Going ahead, there could be some pressure on margins of companies as they feel the pinch of rate hikes by the Reserve Bank of India in form of higher input costs."

Corporate advance tax collections grew 18% to ₹ 92,000 crore in the first two quarters of the fiscal from a year earlier. Personal advance tax collections gained 29% to ₹ 9,000 crore.

“We will be able to meet the budget estimates of direct tax collections. But the recent upward revision in the target by 10% looks a bit difficult to achieve," said the income-tax department official.

Finance minister Pranab Mukherjee had set a direct tax collection target of ₹ 5.32 trillion for the current fiscal in the Union budget, which was revised upwards by 10% to ₹ 5.85 trillion. The new target is 31% higher than the ₹ 4.46 trillion in direct tax collected in FY11.

“With the major part of the refund process complete and the government showing some restraint for the remaining amount, the government should be able to meet the direct tax collection targets set in the budget," Malhotra said.